The real question is how much universities are willing to either a) reduce overhead costs for law schools or b) absorb losses by law schools. Even small class size reductions mean serious revenue losses for law schools, viewed over a three year period. For example, a school with an average tution of $32,000 (imagine a $40,000 sticker price with an average discount rate of 20%), that reduces its entering class in Year 1 from 300 to 270, will see revenue drop $2.8 million over three years. And that assumes that the school bounces right back up to a class of 300 the next year. Replicate that class of 270 in Year 2 and now you're looking at a dip in revenue of $5.6 total. And none of this takes into account increased discounting, the less visible approach to maintaining entering class credentials.

Fewer students. Lower effective tuition. This is probably a healthy phenomenon, and it suggests that the market works, more or less. But in order to sustain this reduction, schools must reduce costs. For some law schools, the reduction might be entirely carried by the University - in the form of reduced overhead payments or actual subsidies. But it's pretty easy to imagine that for most schools, and particularly for free-standing institutions, the reduction will have to be paid for with budget cuts and efficiency gains.

My sense is that this year's entry level hiring reflects this reality: fewer schools attending the AALS hiring conference and, anecdotally at least, fewer hires. The longer term story remains to be written.

Update: Some readers have had difficulty downloading the chart which is in a recent version of Excel. I have uploaded an Alternative 2012 Law Class Profile Chart in an earlier version of Excel. Perhaps thsi will help.

Well, the good news is that, in these times of falling applications and falling admissions standards, a number of lower ranked schools are picking up the slack by admitting even more students than last year. From a quick skim:

Dear Dan, In considering revenue loss and income streams, it would also be important to look at the number of transfer students admitted. This analysis would also indicate whether the first year decline is being driven by employment concerns or US News.